The Value of Shortselling:
1) If you think it's a bear market or a specific stock is going down, you can obtain good profits by selling short.
2) To hedge your portfolio.
3) Not many people do it. You have the field relatively to yourself as opposed to being long.
4) I find that negative research on a company is usually superior to positive research and has greater impact on the stock. Because negative research is so " rare ", it tends be better.
Some Misconceptions about Shortselling:
1) It's Un-American. The Reality, however,is the stock may go down. Many companies go out of business or lose tremendous market share. Is it Un-American to profit on that insight?
2)Profits are limited and your losses unlimited- an outright lie! Profit potential on a short sale is unlimited if you know what your doing.For instance, you short 1000 shares at $100 and the stock falls to $50. That's a $50,000 profit. If you started with $100,000 in equity, your total equity is now $150,000. At this point the stock is trading at $50, which is $50,000 per 1000 shares. To maintain 100% equity behind your position, you only need now $50,000 in the account.You can take out the extra money and earn interest on it or sell short an additional 2000 shares without using margin as such. The Pyramid need not stop there.
Short selling is an art and science for those who know how to employ it and who are free enough in spirit to learn it. Markets, and stocks, in particular, do not go up forever.
|
